Scientific Games Offers Revealing Look at Lotto Biz to Lure Bidders

Posted on: September 16, 2021, 09:10h. 

Last updated on: September 16, 2021, 01:35h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Scientific Games (NASDAQ:SGMS) is pulling back the curtains and cracking open the books on its lottery unit, offering potential suitors an intimate look at the business that’s for sale.

SG Lottery
Scientific Games opens books on lottery business, as illustrated in the photo above. It’s seeking a buyer for SG Lottery. (Image: 4State News)

The gaming company said the SG Lottery has more than 130 customers in over 50 countries, noting that North America and Europe account for nearly all of the segment’s revenue. In fiscal 2020, those regions drove 73 percent and 24 percent, respectively, of SG Lottery sales. The company also highlights the strength in its instant games operations.

Clear #1 position in Instant Games (69 percent global share of instant game retail sales) and strong momentum across other segments (17 percent US market share in terminal-generated games and 13 percent US market share in iLottery market based on retail sales),” said Scientific Games in a statement.

In June, Las Vegas-based Scientific Games confirmed SG Lottery and the Don Best sports wagering units are up for sale. The transactions, which are also aimed at unlocking shareholder value, could come in three ways: an initial public offering (IPO), a merger with a special purpose acquisition company (SPAC), or an outright sale or a combination with another entity. Las Vegas-based Scientific Games did not provide a timeline for when the divestitures will occur.

SG Lottery Could Be Alluring Target

Online sports betting and iGaming and are generating most of the hype in the gaming business, particularly when it comes to consolidation. However, the lottery business remains steady across multiple economic climates. It is also a strong generator of free cash flow for some operators.

As Scientific Games notes, SG Lottery revenue is poised to deliver a compound annual growth rate (CAGR) of 13.6 percent through 2022. More growth could be forthcoming, thanks to the company’s recently announced acquisition of Sideplay Entertainment. That could speed the operator’s ascent in the potentially lucrative iLottery market.

“Significant growth underpinned by even faster growth in the US market, with 19 additional states expected to legalize iLottery by 2025, which is expected to increase the US iLottery market from $3 billion of retail sales today to $12 billion of retail sales by 2025,” according to the company.

Bottom line: SG Lottery is likely to easily find suitors. Rumors indicate several private equity companies, including Apollo Global Management (NYSE:APO), are expressing interest in the business.

SG Lottery Possible Valuation, Other Moves

SG Lottery provides the systems used to generate Mega Millions and Powerball tickets. It generated $430 million in earnings before interest, taxes, depreciation and amortization (EBITDA) for the 12 months ending June 30.

Some analysts believe the business could fetch 10 times that figure or more in an initial public offering (IPO). Jefferies said an IPO of SG Lottery could be valued at up to $5.16 billion.

It is possible that Scientific Games opts for an IPO of SG Lottery rather than a sale, and rumors surfaced to that effect, indicating the company could list the lottery unit in Australia.